The new coalition of the Progressive Party and the Independence Party indicates it will drop the EU membership negotiations. Former declarations by the Progressive party that money to reduce household debt will be fetched from creditors to Glitnir and Kaupthing have been softened. But voters are already losing faith in the seductive promises.

The main goal of the incoming Government is inducing much needed optimism in Iceland, Bjarni Benediktsson leader of the Independence Party said today. Benediktsson will be Minister of Finance and Economy in a Government led by Sigmundur Davíð Gunnlaugsson leader of the Progressive Party.

The first part of the coalition agreement (so far, only available in Icelandic) is on “Homes” – i.e. debt situation of private households to whom the Progressive Party promised extensive debt relief. This promise was to be financed by negotiating with creditors of Glitnir and Kaupthing in such a way that the Government would get the funds needed. The exact method was however never quite clarified.

Here is what is stated in the coalition agree on this topic (my translation; my comments in brackets):

As indexed debt increased and asset prices fell, i.a. because of the effect of the collapse of financial firms and because of their appetite for risk leading up to the collapse, it is right to use the scope – which will most likely be created parallel to the winding down of the estates (of the collapsed banks) – to assist borrowers and those who put their savings towards their homes, just like the Emergency Law (passed on October 6 2008) secured that the assets of the estates were put to use to defend financial assets and to resurrect domestic banking. The Government keeps open the possibility to set up a special correction fund to reach it goals.

This sounds clunky and unelegant but so is the Icelandic text. This statement is somewhat rambling compared to the campaign promises. This “correction fund” indicates that if the process of recovering funds towards the promises takes (too) long this fund can bridge the time gap. How the fund is going to be financed is not clear nor is it clear how much money will be used for the much announced debt relief. And when borrowers can expect a cheque or correction is not made clear either. – Gunnlaugsson said today that coalition agreements were rarely very specific but added he was very content with how clear the agreement was on this issue. To me, this clarity is totally unclear.

Both coalition parties are opposed to membership to the European Union. This is what the agreement says on the EU:

There will be a break in Iceland’s membership negotiations with the European Union and an assessment made of their status and the development within the Union. This assessment will be put to Parliament for discussion and the nation informed of it. The membership negotiations with the European Union will not be continued except after a referendum.

There are pro-EU members of the Independence Party, the party’s MPs are mostly against membership but some of them – i.a. both Benediktsson and Illugi Gunnarsson who will be a Minister for Culture and Education – have earlier aired pro-EU stance. The pressure from strong interest groups such as the fishing industry and from the party’s old guard has swayed the party into a more hard-line direction in later years. However, many of their traditional voters are still pro-EU.

The list of ministers was published tonight. From the Progressive Party:

According to a poll published today, the Progressive Party is already losing votes, indicating that voters are turning skeptical. The party got 24.4% of votes but has now 19,9% meaning it has lost about 20% of its votes in three weeks. The Independence Party is strengthened, from 26.7% in the elections to 28.4% now. The Social Democrats are on the same losing course as the Progressive Party, drop from 12.8% to just below 12% but the Left Green rise from 10.8% to 12%.

Apart from introducing a coalition agreement today, Gunnlaugsson had an indirect brush with the justice. As he headed back to Reykjavík, from Laugavatn ­– the village where the signing ceremony and press conference was held – his political adviser who was driving got stopped by the police for speed-driving. The youngest Prime Minister in Iceland since 1944 is clearly eager to get on with his job. The polls today indicate that he has no time to lose.